Centerra Gold Inc. (TSX: CG) announces that the Company and its Kyrgyz subsidiaries (Kumtor Gold Company (“KGC”) and Kumtor Operating Company (“KOC”)) have entered into a comprehensive settlement agreement (the “Strategic Agreement”) with the Government of the Kyrgyz Republic (the “Government”) on behalf of the Kyrgyz Republic.
Highlights of the Strategic Agreement
- Full and final reciprocal releases and resolution of all existing arbitral and environmental claims, disputes, proceedings and court orders, and releases of the Company and its Kyrgyz subsidiaries from future claims covering the same subject matter as the existing environmental claims arising from approved mine activities;
- The termination of the Kyrgyz Republic court order which, among other things, restricted KGC’s ability to transfer cash to Centerra. KGC is in the process of transferring the cash balance that is over and above its ordinary working capital requirements to Centerra and the Company expects that to occur by September 15, 2017;
- An acknowledgement that there will be no restrictions on the ability of KGC to distribute funds to Centerra in the future;
- All restrictions are lifted on the free movement of KGC’s employees;
- No admission on the part of Centerra or its Kyrgyz subsidiaries of: (i) any environmental wrongdoing, (ii) any non-compliance with Kyrgyz law or the Kumtor Project Agreements or (iii) any pre-existing obligation to make additional environmental or Reclamation Trust Fund payments or environmental remediation efforts;
- The existing 2009 agreements governing the Kumtor Project (the “Kumtor Project Agreements”) remain in full force and effect, including the tax and fiscal regime thereunder;
- No changes to current or planned operations at the Kumtor Project are required;
- KGC has agreed to make a one-time lump sum payment totaling US$57 million to a new, government-administered Nature Development Fund (US$50 million) and to a new, government-administered Cancer Care Support Fund (US$7 million) and within 12 months of closing make a further one-time payment of US$3 million to the Cancer Care Support Fund. These amounts are expected to be recorded as an expense and liability in the Company’s third quarter results;
- Annual payments of US$2.7 million to the new Nature Development Fund, conditional on the Government continuing to comply with its obligations under the Strategic Agreement;
- KGC has agreed to accelerate its annual payments to Kumtor’s Reclamation Trust Fund in the amount of US$6 million a year until the total amount contributed by KGC reaches the total estimated reclamation cost for the Kumtor Project (representing the independent assessment of Kumtor’s current reclamation costs) subject to a minimum total reclamation cost of US$69 million (which is broadly in line with KGC’s current estimated reclamation cost for the Kumtor Project);
- KGC would consider, together with the Government, other potential investment opportunities in the Kyrgyz Republic and at the Kumtor Project; and
- The releases of liability and all payments are subject to a range of initial conditions precedent, discussed in further detail below and are expected to be completed in the fourth quarter of 2017.
Consideration by Centerra’s Board of Directors
A Special Committee comprised of independent directors of Centerra has overseen the negotiation of, and entry into, the Strategic Agreement, and has recommended that Centerra’s Board of Directors approve the Strategic Agreement and the transactions contemplated thereby. Upon taking into account the recommendation of the Special Committee and such other factors as it considered relevant, the Board of Directors of the Company unanimously approved the Strategic Agreement and the transactions contemplated thereby.
Further Details of the Strategic Agreement
Under the Strategic Agreement, KGC has committed to making contributions to (i) a new, government-administered Nature Development Fund established for the purpose of financing environmental conservation projects and nature preservation in the Kyrgyz Republic, consisting of a one-time lump sum payment of US$50 million and ongoing annual payments of US$2.7 million, which annual payments are conditional on the Government continuing to comply with all conditions precedent under the Strategic Agreement, (ii) a new, government-administered Cancer Care Support Fund to be established for the purpose of funding cancer treatment, research, support and outreach in the Kyrgyz Republic, including a one-time lump sum payment of US$7 million and within 12 months of closing a further one-time payment of US$3 million, and (iii) the acceleration of payments to Kumtor’s Reclamation Trust Fund in the amount of US$6 million a year until the total amount contributed by KGC to the Reclamation Trust Fund (which currently holds approximately US$26.3 million) reaches the total reclamation cost for the Kumtor Project determined in accordance with the existing Reclamation Trust Deed (subject to a minimum total reclamation cost of US$69 million), which annual payments are conditional on continued operation of the Kumtor Mine by KGC and KOC with all necessary permits and no expropriation-related action being taken on the part of the Government.
The Parties will also negotiate in good faith to amend and restate the existing Reclamation Trust Deed to: (i) provide for the accelerated Reclamation Trust Fund payments described above, (ii) require that such funds be held in highly liquid, safe US dollar-denominated short-term securities (such as obligations of the United States government), provided that, subject to the agreement of the Parties, no less than 20% of the funds shall be invested in highly liquid securities backed by the full faith and credit of the Kyrgyz Republic; and (iii) to establish a supervisory board to oversee such investments.
KGC has also agreed to take certain specified actions in respect of the recommendations previously made by the Government’s environmental consultant, Amec Foster Wheeler, most of which have already been fully implemented.
The releases of liability and all payments are subject to a range of initial conditions precedent designed to protect Centerra, KGC and KOC, including (i) the approval by the Government of various outstanding items, including the Kumtor life-of-mine (LOM) plan, official reserves report and the tailings dam expansion, (ii) compliance by the Government with its obligations under the Kumtor Project Agreements, (iii) continued operation of the Kumtor Mine by KGC and KOC with all necessary permits, (iv) no expropriatory action having been taken by the Government, and (v) termination of the environmental disputes and the civil and criminal proceedings instigated by the Kyrgyz General Prosecutor’s Office on terms satisfactory to Centerra.
Centerra is continuing to work closely with the Government to expeditiously satisfy the conditions precedent to the Strategic Agreement, which are expected to be completed in the fourth quarter of 2017.